Claims that major terrorist acts were foiled in Azerbaijan at the end of 2007 have prompted discussion about the extent to which Islamic extremism is a genuine threat in the oil-rich land. Azerbaijan is a secular state with an overwhelmingly moderate (predominantly Shiite) Muslim population. Since the break-up of the Soviet Union and independence in 1991, independent Sunni and Shiite groups have emerged which refuse the spiritual authority of the official clergy. Some are political, but very few, if any, appear intent on employing violence to overthrow the state. The government, however, expresses concern about these “independents”, and tries to control them, including through repression. Its strategy risks radicalising peaceful activists and believers.....

....The independent communities identified throughout this report do not appear to pose a genuine threat to the government or to a secular way of life. Almost no group in the country can be considered jihadist. The few groups that openly voice a desire to establish an Islamic state lack a significant following and a strategic vision of how to implement their goal. But exaggeration of the Islamic threat has been used to justify repression and control of religious life, which risks leading to politicisation and possible radicalisation of the many more who have suffered from police brutality even if they were originally apolitical and purely religious.....

....The arms race set off by Baku’s rapidly expanding military budget is dangerous. Nagorno-Karabakh is a simmering conflict – all Azerbaijanis are determined to restore the country’s territorial integrity – not a deep frozen one. It has the potential to destabilise a sensitive region at some point in the next few years far more than the August 2008 events in Georgia. The fundamental need is for all who profess an interest in stability in these areas to take the initiative to ensure that it is diplomacy, not war, that provides the answer to the Nagorno-Karabakh conflict.

After two decades of conflict over Nagorno-Karabakh, Azerbaijan and Armenia have moved closer to a preliminary “basic principles” agreement that would create crucial momentum towards an eventual formal peace agreement. Key differences remain, however, regarding the right of return of all displaced, the specifics of Nagorno-Karabakh’s interim status and, especially, a mutually acceptable process for determining its final status. The leaderships of both countries, particularly in Armenia, face significant opposition from political forces that are suspicious or outright opposed to even the broad outlines of a basic principles agreement. Both governments need to do more to counter years of hostile propaganda in their societies. International mediators should reinforce the message that the status quo is not sustainable, given growing instability along the front lines, steady increase in armed skirmishes and dangerous military build-ups in both countries. While the historic move of Armenia and Turkey toward rapprochement after a century of hostility is technically distinct, the processes reinforce each other.

Similar “windows of opportunity” have been missed before, falling victim to public hostility stoked by hostile propaganda and entrenched bitterness on both sides and a mutual lack of political will. This time, a large part of the impetus for progress has come from the leaders of Azerbaijan and Armenia themselves. Parallel to the efforts at the negotiating table, the Azerbaijani and Armenian leaderships and their international partners should work with the publics to bridge the gap in perceptions of the peace process, so that popular opinion reinforces, rather than challenges the political will of leaders to reach agreements.....

Both states have an unresolved conflict (Nagorno-Karabakh) that doesn't seem to attract decisive international mediation/moderation efforts.

Azerbaijan is (judging by superficial info such as budget and personnel) likely militarily superior and this asymmetry is likely to become more extreme.

Armenia's economy is suffering due tot he poor relations with its neighbours Turkey and Azerbaijan, its difficult geographical situation, the lingering conflict.
Azerbaijan otherwise has easily available revenues from oil exports.

I've heard and read rumour that the conflict could soon become hot again.

Examples include European delegation members returning from Baku and recounting war rhetoric not unlike what was heard a few weeks before Georgia tried to gain control of South Ossetia.

I assume it's worth the effort and time to keep an eye on this. Maybe others can contribute to this thread with info that's beyond google's reach?

The conflict over Nagorno Karabakh, opposing Armenia and Azerbaijan, is the longest conflict in the OSCE area and a fundamental security threat to the South Caucasus and surrounding regions, preventing full and inclusive economic development and constraining regional relations. This chapter takes the ENP as a conflict transformation tool and looks at how the EU has used this initiative to reach civil society organisations (CSOs) and improve their performance as peace-builders in this protracted conflict. Building on the theoretical framework presented by Tocci (2008), the chapter assesses EU involvement in the civil society domain, mapping the types of organisations privileged by the EU and the potential impact of their activities on the conflict. It puts forward relevant arguments regarding the suitability of the EU’s goals and instruments to the dynamics on the ground and concludes with a categorisation of the EU’s approach according to three hypotheses: The Liberal Peace, the Leftist Critique and the Realist hypothesis. It is argues that work with civil society is a crucial part of the EU’s approach, despite the difficulties of making such engagement a central part of its peace-building and conflict transformation activities.

An arms race, escalating front-line clashes, vitriolic war rhetoric and a virtual breakdown in peace talks are increasing the chance Armenia and Azerbaijan will go back to war over Nagorno-Karabakh. Preventing this is urgent. Increased military capabilities on both sides would make a new armed conflict in the South Caucasus far more deadly than the 1992-1994 one that ended with a shaky truce. Neither side would be likely to win easily or quickly. Regional alliances could pull in Russia, Turkey and Iran. Vital oil and gas pipelines near the front lines would be threatened, as would the cooperation between Russia and Turkey that is central to regional stability. Another refugee crisis would be likely.....

Hopes have been dashed again that Armenia and Azerbaijan might make finally make a breakthrough in their long-standing conflict over the Nagorno-Karabakh region. The two countries' presidents left a meeting mediated by Russia's Dmitry Medvedev on 24 June in Kazan, without approving the basic principles for the conflict's resolution. With many recent ceasefire violations in Nagorno-Karabakh and a growing arms race between Armenia and Azerbaijan, this latest failure leaves open the threat of a new war in the region.

The conflict between Azerbaijan and Armenia is brewing- Azerbaijan is able to spend a lot on its military with oil money, and it does so. The military spending figures grow dramatically.
Reports about the attitudes in Baku are alarming.

This begs the question: are there must-know places (websites, institutions, experts, publications) concerning the conflict and the forces of Azerbaijan and Armenia?
For once, I'd like to know about some obscure region in detail before it blows up and I'm left with lots of 60-minute-educated journalist summaries about it.

Thomas Goltz covered Turkey and the Caucasus as a journalist; he also covered the Karabakh war extensively. Goltz is part foreign correspondent, part scholar, and part madman; his book Azerbaijan Diary is excellent.

__________________“[S]omething in his tone now reminded her of his explanations of asymmetric warfare, a topic in which he had a keen and abiding interest. She remembered him telling her how terrorism was almost exclusively about branding, but only slightly less so about the psychology of lotteries…” - Zero History, William Gibson

The conflict between Azerbaijan and Armenia is brewing- Azerbaijan is able to spend a lot on its military with oil money, and it does so. The military spending figures grow dramatically.
Reports about the attitudes in Baku are alarming.

You definitely called this one correctly, the recent events over the released Azeri murderer being welcomed home as a hero, promoted, and given back pay have brought the level of hatred between the belligerents out into the open for the rest of us to see.

Assuming this does escalate into a conflict it may have significant regional implications that impacts the U.S., Russia, Iran, Turkey, and Georgia, all of which will have interests they'll use the conflict for to pursue.

No evidence from Safarov's 2006 trial in Budapest suggests either claim is true. But some Azerbaijani observers say the legacy of the Nagorno-Karabakh war and a steady diet of government anti-Yerevan invective have combined to cement an almost pathological hatred of Armenians in the minds of many Azerbaijanis.

"It's not only the Armenian soldiers and officers who are occupying our land that Azerbaijanis consider their enemy," says Baku-based political analyst Zardusht Alizadeh. "It's not only the 'Armenian terrorists' who were killed in the fighting. Because of a very skillfully constructed propaganda campaign, it's all Armenians who are considered the enemy. That's why a man who killed an Armenian in his sleep is automatically categorized as a hero."

This looks like we're reading the prelude to war, and I don't see much hope for a peaceful intervention. Seems to have little to do with economic development issues, although both sides are underdeveloped, and everything to do with honor, fear, and hatred.

Footage recorded by Sputnik Armenia shows heavy armor moving in a column along the streets of Stepanakert, the capital and the largest city of the unrecognized Nagorno-Karabakh republic, amid the recent escalation in the region.

The situation around Nagorno-Karabakh sharply deteriorated overnight, with
Azerbaijan and Armenia accused each other of starting the fighting.

Russian President Vladimir Putin has called for an end to fighting after clashes broke out in the disputed Caucasus region of Nagorno-Karabakh.

Azerbaijan said 12 of its soldiers had been killed and a helicopter shot down. TV pictures showed a burned out vehicle and craters after gunfire and shelling.

Nagorno-Karabakh has been in the hands of ethnic Armenian separatists since a war that ended in 1994.reports of gun and mortar fire coming from the border with Azerbaijan. Armenia and Azerbaijan accuse each other of provoking the escalation.

Energy-rich Azerbaijan, whose military spending has exceeded Armenia’s entire state budget, has repeatedly threatened to take back the breakaway region by force if negotiations fail to yield results. Moscow-backed Armenia says it could crush any offensive.